John D.
Graham, Ph.D.
Administrator
Office of Information and Regulatory Affairs
Office of Management and Budget
Executive Office of the President of the United States

December
17, 2001

I would like to introduce the session today with the following thought
question: "Why would any clear thinking President ask a senior OMB official
with a modest staff of 40 professionals to oversee the entire federal
regulatory state?" Let me suggest, at the outset, that any such effort
might justly be considered hopeless.

First, there
are over 100 federal agencies and subagencies with regulatory mandates
from Congress. They churn out 4,500 new rules each year. The 40 OMB professionals
are obviously outnumbered by the thousands of regulatory specialists in
the agencies.

Second,
a wise regulatory system requires specialized expertise on a remarkable
variety of subjects: agriculture, telecommunications, occupational safety
and health, energy production and conservation, environmental protection,
law enforcement, medicine and health care systems, and so forth. The responsible
federal agencies have experienced professionals in each of these fields;
the expertise at OMB is more limited.

Third, once
a regulatory proposal is formally submitted to OMB, there is already powerful
organizational momentum behind the proposal. Not only have agency staff
devoted potentially years of work to data collection and analysis; policy
officials at agencies may have managed delicate relationships among stakeholders.
At this stage, OMB review is destined to make waves and bruise egos, which
means that it will be resisted, sometimes fiercely and effectively.

Finally,
it is sometimes argued that Congress, through legislative mandates and
oversight, instructs or guides the efforts of agencies. From this perspective,
any OMB "influence" in this bilateral relationship might be seen as extra-legal
or even a perverse influence in democracy. And of course there is the
cynical view that OMB is simply the place where nefarious deals are cut
in the interests of lobbyists wearing alligator shoes and Rolex watches.

Not surprisingly,
I do not share these views that Presidential management of the regulatory
state is hopeless or perverse. I share the vision of Supreme Court Justice
Stephen Breyer who described an experienced cadre of civil servants in
the Executive Office of the President who have broad expertise in the
craft of regulatory policy. Although I am not sure that the British or
French civil service are exactly the right analogies, I do have in mind
a talented and analytically keen staff who know how markets work, how
government works, and respect the role of expertise and values in solving
national problems.

I think
the following empirical fact is instructive: Every President since Richard
Nixon, Democrat and Republican, has insisted on some type of centralized
management of the regulatory state. The common theme has been professional
analysis of regulations to make sure they are sensible. President George
Herbert Walker Bush, when frustrated by his inability to confirm a nominee
to the post I now hold, created an entirely new structure in the White
House to serve roughly the same function. I refer to the Council on Competitiveness
run by Vice President Dan Quayle. Given this history, it is instructive
to consider why Presidents are so determined to manage the regulatory
state.

First, the
federal regulatory state is here to stay. Although economic regulation
has seen much privatization over the last 20 years, the public and Congress
have revealed a growing commitment to public health, safety and environmental
regulation. Market-based approaches to social regulation have shown tremendous
promise but citizens expect leadership from the federal government on
issues of social regulation. There is certainly an urgent need to consult
with state and local officials and respect the role of federalism in our
national system of government. Indeed, my boss, Mitch Daniels, has instructed
me that I should return to agencies any rule that does not have adequate
consultation with our intergovernmental partners. But we should also not
forget that Alexander Hamilton was an important framer of our Constitution
and he recognized the value of a strong central government and the weaknesses
in the original Articles of Confederation.

Second,
the economic costs of the regulatory state are substantial, exceeding
$800 billion according to one recent estimate prepared for the Small Business
Administration. Note that this figure is larger than the discretionary
federal budget and the figure translates into an average annual cost of
almost $8,000 per household. Although many rules have enormous benefits
for households, there is real concern that these dollars are not always
invested wisely. Certainly, noone would suggest that agencies should be
permitted to negotiate their "on-budget" resources from Congress, without
a check from OMB. Likewise, Presidents realize that regulatory expenditures,
while off budget, require fiscal restraint for the same reasons that public
budgets need restraint.

Third, when
two or more agencies disagree about a regulatory matter, the President
needs an experienced unit to forge a consensus so that governance can
proceed. OMB often plays that role in the regulatory arena. Right now,
for example, OMB is working with EPA and DOE and other White House offices
to devise a legislative strategy to promote cleaner power generation in
America.

Finally,
Presidents use the powers of OMB regarding agency action to advance Administration
priorities and policy objectives. President Reagan pursued an agenda of
regulatory relief as one way to nurture a depressed economy riddled by
the misery index: double-digit rates of inflation, unemployment, and interest.
President Clinton used centralized review to promote a wide range of social
objectives such as tobacco and firearms control and children's health.
We should remember that OMB is an office within the Executive Office of
the President and its actions necessarily reflect Presidential priorities.

In this
Administration, OMB's regulatory office is pursuing an agenda of smarter
regulation. Despite what some of our critics charge, there is no grandiose
plot to roll back safeguards or attempt an across-the-board sunset of
existing regulations. What the President seeks is a smarter regulatory
process based on sound science and economics: a smarter process adopts
new rules when market and local choices fail, modifies existing rules
to make them more effective or less costly, and rescinds outmoded rules
whose benefits no longer justify their costs. We are pursuing this agenda
under the terms of the Clinton-Gore executive order, which we believe
- though not always enforced in the 1990s- is based on sound principles
and procedures.

The changes
we are making at OMB are not headline-grabbers: No far-reaching legislative
initiatives, no rhetoric-laden executive orders, and no campaigns of regulatory
relief. Yet we are making some changes that we believe will have a long-lasting
impact on the regulatory state.

First, we
have taken steps to enhance the openness of OMB's regulatory review process,
building upon the steps taken by my predecessors, especially Wendy Gramm
and Sally Katzen. Through the Internet, it is now possible for the public
to scrutinize how we use science and economics to stop bad rules and help
agencies craft better ones. We are also an active partner in a multi-year
effort to link my office to E-government. There may always be a need to
hold some candid deliberations in the secluded quarters of the Old Executive
Office Building. I certainly do not believe that the Executive Office
of the President can operate in a fishbowl. However, I do believe that
more openness at OMB about regulatory review will enhance public appreciation
of the value and legitimacy of a centralized, analytical approach to regulatory
policy.

Second,
we are hiring the first scientists and engineers at OIRA to accompany
a cadre of economists, statisticians, and information technology specialists.
We believe this more diversified pool of expertise will enable us to ask
better questions about agency proposals. We have reversed the 20-year
decline in staffing at OIRA and have done so in a way that reflects the
increasing importance of science-based regulation in the federal agencies.

Third, we
have sent clear signals to agencies that we care about regulatory analysis,
QUALITY regulatory analysis. We are using both the carrot and the stick.
The carrot we have offered is more deferential OMB review of proposals
that agencies have voluntarily subjected to independent peer review. Administrator
Whitman's recent decision on arsenic, whether you like it or not, was
supported by just that type of review. The Bush Administration recognizes
that we should consider and account for the consensus views of the leadership
of the scientific community, regardless of whether it leads to a pro-
or anti- regulation result. The stick has been a revival of the dreaded
"return letter". In the last three years of the Clinton Administration,
there were exactly zero return letters sent to agencies for poor quality
analysis. I have signed more than a dozen such return letters in the last
six months and they are available for scrutiny on OMB's web site. Recently
we have witnessed some agencies simply withdrawing rules rather than face
a public return letter. Knowing that we care, agencies are beginning to
invite OMB into the early stages of regulatory deliberations, where our
analytical approach can have a much bigger impact.

Fourth,
we have demonstrated that we are prepared to initiate new regulatory actions
when they are sensible and based on sound science and economics. I am
not simply talking about the series of new rules aimed at protecting homeland
security, including airline safety, food safety, and immigration control.
Indeed, many of these proposals will require a serious analytic look before
they are cleared. We have also devised a modest tool called the "prompt
letter" that enables OMB to publicly identify areas where agencies might
improve regulatory policies. Our first four prompt letters, available
on OMB's web site, address potential opportunities to save lives and improve
health through cost-effective regulation.. One OMB letter has accelerated
FDA's deliberations on a rule that would require labeling of foods for
their trans-fatty acid content, an important risk factor for coronary
heart disease. Another OMB letter to OSHA has stimulated a national information
program to promote workplace use of automatic defibrillators, a technology
that saves lives from sudden cardiac arrest and is already found in airports
and federal buildings. A recent letter to NHTSA requires that priority
be given to a rulemaking to test cars and light trucks in offset crash
tests, an approach that may reduce the frequency and severity of lower
extremity injuries in car crashes. And our most recent letter, to EPA,
has encouraged targeted research to better understand the health benefits
of reducing different types of particle pollution from power plants, industry,
and motor vehicles. Unlike the more definitive Presidential directive,
the prompt letter is a public request that is intended to stimulate agency
and public deliberation. Final decisions about priorities remain with
the agencies.

The prompt
letter is not simply a pro-regulatory tool; we will be using it to encourage
agency efforts to streamline the regulatory process. We do not believe
that across-the-board reviews of all existing rules are a cost-effective
use of agency resources; yet we have sought public comment and learned
of 70 targeted suggestions to modify or rescind existing rules. We will
be sharing these ideas with agencies through our forthcoming annual report
on regulatory policy. We are also encouraging interested parties to prepare
additional nominations for the public comment process on next year's annual
report on the costs and benefits of regulation.

Finally,
and perhaps most importantly, we are developing government-wide guidelines
to promote better quality in the information and technical data that agencies
collect, use and disseminate to the public. The guidelines were mandated
by Congress and shaped pursuant to the Paperwork Reduction Act. When agency
information forms the basis of important public policies, we go beyond
the standard of journal peer review and require that such data be reproducible,
or at least highly transparent about research design, data sources, and
analytic methods. When people are harmed by poor quality information,
the OMB guidelines provide new avenues for citizen complaints, agency
corrections, and formal appeals processes to resolve disputes. Each agency
will be preparing information-quality guidelines that OMB will review
over the next year. OMB and agencies will continue to reach out to the
scientific communities to assist in this process. We urge you to participate
in this process because we believe it has tremendous potential to enhance
the competence and accountability of the regulatory state.

Thank you
very much for the opportunity to speak today and I look forward to some
questions, comments and discussion.